Speaker 1: Bloomberg Audio Studios, podcasts, radio news. The Golden SAX Annual
Speaker 1: Global micro Conference for Asia Pacific getting underway in Hong
Speaker 1: Kong right now with more than two thousand investors, policymakers
Speaker 1: and amlest gathering to really go over the economic outlook
Speaker 1: for the year ahead. We're trying to correspond the mime
Speaker 1: and Low is there with our next guest meme.
Speaker 2: Thanks Heidi. Certainly what those Trump terry scheme for the
Speaker 2: global economy is an important theme here at the Global
Speaker 2: micro Conference. And the perfect guest to join us here
Speaker 2: discussing this is Jan Hatzias, a chieved global economists at
Speaker 2: Goldman Sex. So Jan, really great to have you here,
Speaker 2: and I want to start with what's happening in the
Speaker 2: US because obviously we're waiting for the inflation data. We
Speaker 2: had a very strong jobs report on Friday, and we've
Speaker 2: seen you spiking investors really stop pricing in anything more
Speaker 2: than a full rate card. But your house view, though,
Speaker 2: is still that the Fed will cut twice this year.
Speaker 3: Why is there Basically because we think that inflation is
Speaker 3: still on a normalizing path and right now we're at
Speaker 3: two point eight percent for the core PCE measure that
Speaker 3: the FED watches particularly closely. We think that's going to
Speaker 3: go down to about two point four percent by the
Speaker 3: end of the year. And even of that two point
Speaker 3: four percent, about thirty basis points in our forecast comes
Speaker 3: from tariffs. Tariffs are more of a one off effect,
Speaker 3: it's a price level effect, so you might want to
Speaker 3: sort of downweigh that thirty basis points. And the underlying
Speaker 3: inflation rate in our forecast is two point one percent,
Speaker 3: which is very close to the Fed's target. So in
Speaker 3: that kind of environment, I still think you're likely to
Speaker 3: get a couple of cuts, but clearly the FMC is
Speaker 3: in no hurry, and therefore we think it's probably going
Speaker 3: to take until later in Q two, maybe the June meeting,
Speaker 3: for the first cut to be delivered.
Speaker 2: As you said, inflation is actually still quite well, quite
Speaker 2: well above that two percent target. Do you see any
Speaker 2: risk of no cut at all? And underw scenario, I.
Speaker 3: Think you can. Look, there's always a range of scenarios,
Speaker 3: so it's hard to really rule anything out, especially when
Speaker 3: it comes to monetary policy. Monetary policy has to be
Speaker 3: very data dependent and respond to new information. So if
Speaker 3: we were to see very sticky inflation closer to three
Speaker 3: percent throughout the year. Yes, I think in that case
Speaker 3: they might not not cut. That's a possibility. But again,
Speaker 3: if I look at the adjustment that's occurring in the economy,
Speaker 3: the trends in the most least noisy components of inflation.
Speaker 3: If I look at the labor market rebalancing that we're
Speaker 3: seeing even after the strong jobs report, in the slowdown
Speaker 3: in wage growth, to me, that suggests there's still some
Speaker 3: room for monetary policy toized. After all, the funds rates
Speaker 3: still quite high at four and a quarter to four
Speaker 3: and a half percent.
Speaker 2: Okay, so you see the set cutting as a way
Speaker 2: to normalize rates. But meantime, we actually have the news
Speaker 2: today that Trump's economic team is looking at possibly a
Speaker 2: gradual way of a gradual approach to those tariffs, hiking
Speaker 2: maybe two to five percent per month. And to me,
Speaker 2: this sounds like is just going to be a giant
Speaker 2: headache for businesses. So what is your take on this
Speaker 2: and how it's going to shape global trade in businesses?
Speaker 3: First of all, I'd say there have been a lot
Speaker 3: of different reports about tariffs. I mean, I think we
Speaker 3: can have pretty high confidence that tariffs are coming in
Speaker 3: some form. What form exactly they take, I think is
Speaker 3: still a little bit open to debate. There is a
Speaker 3: there are different approaches to rolling out tariffs. You could
Speaker 3: do a ten percent tariff immediately, or you know, maybe
Speaker 3: a twenty percent tariff on China. That's our baseline assumption,
Speaker 3: but you could also roll this out more gradually.
Speaker 2: You know.
Speaker 3: I think which one is more damaging or less damaging
Speaker 3: is a little bit of a judgment call, because if
Speaker 3: you go more gradually, then obviously each increment is pretty small,
Speaker 3: it's kind of predictable what happens next, but it also
Speaker 3: lasts for a longer period of time and you don't
Speaker 3: get it over with in some sense as quickly. So
Speaker 3: I think those are ultimately probably a little bit more details.
Speaker 3: The important point is that, yes, I think tariffs on
Speaker 3: China and probably on auto imports from Europe are probably coming.
Speaker 3: That is part of our baseline, and that is going
Speaker 3: to have an impact on inflation and on growth, not
Speaker 3: a huge impact. These these kinds of tariffs that we
Speaker 3: have in our baseline, they don't negate that we still
Speaker 3: have a pretty constructive inflation outlook and an above consensus
Speaker 3: growth outlook. We're two and a half GDP growth for
Speaker 3: two thousand and twenty five, which is still about half
Speaker 3: a percentage point above the consensus.
Speaker 2: Okay, and I want to talk about China here, because
Speaker 2: your house view is that we could see the CSI
Speaker 2: three hundred gains some twenty percent by the end of
Speaker 2: the year, which I think is one of the most
Speaker 2: optimistic ones out there at a time when investors are
Speaker 2: pulling out of China, and in fact, you're thinking that
Speaker 2: the CSI three hundred will outperform the SMP because your
Speaker 2: outlook there is an eleven percent gain by the end
Speaker 2: of the year. What is underpinning this very strong outlook
Speaker 2: on Chinese equities?
Speaker 3: It's really more a view on valuation and the fact
Speaker 3: that quite a lot of bad news is already priced
Speaker 3: in China, whereas a lot of good news is priced
Speaker 3: in the US. From an economic perspective, we're above consensus
Speaker 3: for the US is are just noted, and we're more
Speaker 3: in line with consensus on China four and a half
Speaker 3: percent growth. We do think there's going to be an
Speaker 3: impact from the tariffs that we just discussed, although I
Speaker 3: think a significant part of that is going to be
Speaker 3: undone or cushioned by policy stimulus. But from an economic perspective,
Speaker 3: you know, our forecast is deceleration from four point nine
Speaker 3: percent last year to four point five percent now. But
Speaker 3: that's not the only driver of equity market and financial
Speaker 3: market performance, because the initial conditions and what investors already
Speaker 3: discounting also plays a role.
Speaker 2: Right. What is your expectations of the sort of stimulus
Speaker 2: we could see from China.
Speaker 3: We think it's going to be a broad range of measures,
Speaker 3: you know, rolling out additional monetary easing, fiscal easing, and
Speaker 3: support for the housing market. I'd also note that if
Speaker 3: you look at the housing markets, obviously a very big
Speaker 3: downturn that we've been seeing unfold over the last few
Speaker 3: years that is still ongoing, but in certain regions at
Speaker 3: least we are seeing some more positive developments on home sales.
Speaker 3: I think housing will continue to be a headwind in
Speaker 3: a bigger picture sense over the next several years, but
Speaker 3: at the margin, in the higher frequency data, we are
Speaker 3: getting a little bit of support, suggesting that the policy
Speaker 3: easing is having some effect.
Speaker 2: Okay, I want to touch on India because India had
Speaker 2: been that bright spot last year and gaining importance as
Speaker 2: concerns mount around China, but we do see India sort
Speaker 2: of prrying back expectations of growth. We've seen a market
Speaker 2: seller recently, the currency plunging. Are you still optimistic on
Speaker 2: the India story?
Speaker 3: Well, I think what we've seen in India has been
Speaker 3: above trend growth and growth really at an unsustainable pace.
Speaker 3: We think that the potential growth rate of the Indian
Speaker 3: economy is closer to six percent, and we've been running
Speaker 3: well above that. So that transition from a and above
Speaker 3: t rend pace to more of a trend pace that
Speaker 3: was always going to occur. And of course these transitions
Speaker 3: can be you know, a little bit disruptive and investors,
Speaker 3: you know, maybe disappointed as growth slows down. But in
Speaker 3: my view, it's really an inevitable deceleration which we'll go
Speaker 3: through now. But if I look at the longer term outlook,
Speaker 3: you know, something in the six plus range, I think
Speaker 3: it's very realistic for India for many years. And that's
Speaker 3: a very rapid potential growth rate, even if it's not
Speaker 3: quite as rapid as the numbers we've been printing in
Speaker 3: the in the recent past.
Speaker 2: All Right, thank you so much. Jan. That was Jan,
Speaker 2: chief Global Economists at Goldman s